2010 Taught Us A Lot About the Game Industry

You can’t play video games on your hand. The industry is wise to keep a very close eye on who has what hardware, who will be buying what hardware and how can we make games that will engage those players and keep them coming back.

A look back at video game industry performance in 2010 has a lot of lessons for the future of the business. I’m still on the fence about the potential of another console cycle, but sales have shown that consumers are still hungry for console gaming—new titles, new hardware and new technology. It’s up to manufacturers to keep gamers interested and spending.

“The biggest concern going into 2010 was that the current generation of game consoles was starting to show its age.   This was especially true of the Xbox 360 and Wii.  However, both systems outperformed DFC’s forecasts.  In the U.S., the Xbox 360 had a record year and the strong sales for the Kinect showed how eager consumers are for new game hardware.  Meanwhile, the PlayStation 3 showed strong steady growth and on a global basis is positioned to pass the Xbox 360 in installed base in 2011.”

Clearly, Microsoft and Sony have scored with motion control and have expanded the reach and extended the life of their current consoles. Developers and publishers need to exploit the expanded install base and the new gameplay possibilities to keep gamers buying.

The Wii showed us the console game audience could be enormously larger than many publishers ever dreamed in the days of kids on Nintendo and teens on PlayStations. Families started playing console games together and alone and games that were once considered casual became top console sellers.

“…the PC as a game platform continues to show steady but slow growth with an incredible diversity of products and business models.  The market is of course saturated with products, but the PC is now the core platform for most of the most profitable game franchises.”

I remember one of my favorite magazine ads ever in the game industry. It was from the 90s and showed an outrageously messy room with empty pizza boxes, discarded fast food, toilet paper and a toilet as the chair in front of a PC. The ad was meant to show your average PC gamer—an anti-social computer troll too lazy and too addicted to get up to go to the bathroom. (Of course that was a positive thing and a humorous ad to hardcore PC gamers. This must be a really good game!)

Now the PC is the core platform for the most profitable game franchises because of subscription-based MMOs, casual portals and social games. The industry scored another victory by continuing to expand the subscription base of MMOs, successfully monetizing casual games and integrating social games into the daily lives of a whole new audience.

“So why have reports about the industry tended to talk about 2010 in negative terms?”

Good question. Perhaps it’s the general state of the economy, the staggering number of studio closures and layoffs in the industry in 2010 and/or morale-killing litigation over free speech issues and between publishers and talent. These are all factors that affect business, but the sales figures speak for themselves.

“On a worldwide revenue basis it looks like 2010 will be the second best year for consumer spending on games (2008 was the best year).”

The video game industry continues to grow and expand its audience. What was once considered a toy is now a ubiquitous part of everyday life for many people across the globe.

I think the real reason for negativity is the huge amount of change that’s occurring. Business models are changing and skillsets need to change. Markets are expanding and monetization that works needs to follow. Because the video game industry is now selling to the world, the money is bigger and the risk is greater. Companies and individuals must successfully squeeze the greatest possible return from their licenses, their technologies, their platforms and their markets.

“The biggest issue is the increased fragmentation of the game industry.  Fragmentation is occurring across geographies, platforms, business models, consumer demographics and most importantly distribution.”

Some companies are embracing this fragmentation completely. They seem to be turning their back on what has been successful and putting all their resources into new markets. I think this is a questionable strategy in the short term, but may win out for some of the huge conglomerates in the long term.

Kids are still going to ask for console games for holidays 2011 and beyond. Motion control is just getting started and consumers haven’t yet been shown what’s possible in gameplay mechanics and technology. 3D is on the horizon and will have a powerful impact on interactive entertainment.

“This reliance on a handful of hit products to bolster balance sheets is the biggest challenge facing the game industry as it gropes with acclimating to the free-to-play model.  The movement to digital distribution and emerging free-to-play and virtual item models shows long-term promise to increase industry profitability.  However, in the short term, the big retail products continue to dominate at least Western markets.  All the games combined on Facebook or Apple platforms can not yet equal the revenue of one hit retail game.”

Install base. Install base. Install base. Just like in Real Estate, one thing has immense power in terms of how many games can possibly be sold. You can’t play video games on your hand. The industry is wise to keep a very close eye on who has what hardware, who will be buying what hardware and how can we make games that will engage those players and keep them coming back.

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